Question

A- Future and Present Values of Multiple Cash Flows - Unless we are explicitly told otherwise, what do we always assume about the timing of cash flows in present and future value problems?

B- Valuing Level Cash Flows: Annuities and Perpetuities - In general, what is the present value of an annuity of C dollars per period at a discount rate of r per period? The future value?

C-Comparing Rates: The Effect of Compounding -If an interest rate is given as 12 percent compounded daily, what do we call this rate?

D-Comparing Rates: The Effect of Compounding - What is an APR? What is an EAR? Are they the same thing?

Answer 1

Unless we are explicitly told otherwise, what do we always assume about the timing of cash flows in present and future value problems?

The first cash flow occurs after one period and cash flows occur annually

In general, what is the present value of an annuity of C dollars per period at a discount rate of r per period?
=C/r*(1-1/(1+r)^n)

The future value?
=C/r*((1+r)^n-1)

If an interest rate is given as 12 percent compounded daily, what do we call this rate?

APR or nominal rate

What is an APR?
Nominal rate or rate which does not consider compounding effect

What is an EAR?
Effective rate which considers compounding effect

Are they the same thing?
No